Key Take Aways
- Chargebacks due to fraudulent transactions cost the auto industry over 6 billion dollars per year.
- The chargeback fees are high, ranging from $15 to $100 per order depending on the chargeback rate
- Merchants are liable for 78% of chargeback dollars on average.
- The results of a recent study conducted by Forbes found that the average value of a fraudulent transaction is five times higher than an average legitimate transaction.
Chargebacks due to fraudulent transactions cost the auto industry over 6 billion dollars* per year. Dealership fraud was at an all-time high even before COVID struck:
In 2018 credit card fraud reached $6.8 billion in the US.*
New account fraud is up 13%.*
Account takeovers are up 79%.*
Credit card fraud has intensified in the wake of COVID-19 as cybercriminals capitalize on an auto dealership’s parts counter and service department’s vulnerability during this uncertain time of upheaval and stress.
Many dealerships are mom-and-pop shops that lack the might of a large organization. Far too many dealerships use antiquated security measures. If it is targeted, your dealership and your service department will suffer devastating financial consequences.
- The chargeback fees that will result are high, ranging from $15 to $100 per order depending on the chargeback rate.**
- Loss of the money you made on the transactions
- Credit card penalties up to $100,000 per month**
- Risk of termination from the credit card network
- You could be subject to lawsuits. Merchants are liable for 78% of chargeback dollars on average.**
- Parts and services obtained fraudulently are 100% losses.**
- Significant shipping losses on orders with expedited shipping and/or higher ticket totals
- Processors may increase your processing fees or require your dealership to fund an escrow or reserve account to pay for future chargebacks
- Steep operational costs including warehouse, customer service and marketing costs
The results of a recent study conducted by Forbes found that the average value of a fraudulent transaction is five times higher than an average legitimate transaction. Examples include:
- The average cost of a legitimate auto repair charge is $350.**
- The average cost of a fraudulent auto repair charge is $1,850.**
Awareness is the first step in avoiding fraudulent transactions. Dealerships leave themselves open to chargeback fees and fraud in three different ways.
1. Believing That Fraud Cannot Happen To Them
The question about fraud is not, “Will it happen to my dealership?” The question is, “When will it happen to my dealership?”
At some point, cybercriminals will target your dealership. It will not just happen once, either. These <insert expletive here> are forever finding new and advanced ways to infiltrate your dealership’s cybersecurity weakness.
Furthermore, there is not just one – but three – types of fraud that threaten your dealership:
- Account takeover – Sensitive information is stolen after malware is installed on a device.
- Clean fraud – Transactions are made with a stolen credit card or stolen credit card information.
- Friendly fraud – This type of fraud occurs when a customer makes a legitimate purchase using their credit card and then disputes with the issuing bank instead of requesting an exchange or refund from the dealership. While friendly fraud is malicious in some cases, it typically happens as the result of a misunderstanding. Auto dealerships are a prime candidate for friendly fraud committed on parts, accessories, and services due to buyer’s remorse. In fact, friendly fraud accounts for 40% to 80% of all fraud losses.**
You need to recognize how common credit card fraud is and train your staff to look out for suspicious activity online as well as offline. Human interaction can only go so far, but it is still important to incorporate it into your overall fraud prevention strategy.
2. Not Trusting Their Gut Instinct
There are certain red flags that can alarm bells when customers purchase online:
- Shipping parts overseas
- Customers who are out of state
- Large orders
Unfortunately, some service employees become greedy about earning a generous commission from a large order or desperate to make their quotas. These employees may let orders go through despite noticing red flags. They may ignore their gut instinct in favor of self-serving decisions.
You know the demographics of your ideal customers. Yes, you obtain new customers constantly, but you still know the ideal buyers of your goods and services pretty quickly. Train your employees to recognize the red flags and give them incentive to follow through on their gut instinct.
With so many customers choosing to conduct their business online, especially in the wake of COVID-19, an advanced fraud prevention solution becomes necessary.
3. Relying On Basic Fraud Filters
Weeding out credit card fraud by using the card’s 16-digit number, expiration date and CVV is very ineffective. It will not prevent a cybercriminal who has intercepted the card from using it. Only advanced fraud controls will achieve this objective.
The Elements Of An Advanced Solution
You need an advanced fraud solution in order to truly protect your dealership. It should utilize the following strategies:
- A rules-based approach
- Artificial intelligence (AI)
- Machine learning
4 Bulletproof Points Of Auto Dealership Fraud & Chargeback Protection
There is a solution that provides effective protection against account takeover, clean fraud and friendly fraud. Utilized every time one of your customers pays their invoice through mobile checkout, the technology springs into action with protective measures that include the following.
1. Global data
Compares transactions using rich data from the largest bank in the United States and transactions from thousands of retailers. The information collected includes:
- Good and bad transaction details
- User-defined details
- Bank identification
- Device fingerprinting
2. Bank Identification
Verifies details about the owner and the issuer of the credit or debit card. The information collected includes:
- The type of card (debit, reward, business, corporate)
- The card brand (Visa, Mastercard, Amex, Discover)
- Bank contact details
- The number of emails and cell phones listed on the account
- Address validation
- The distance between the location where the card is being processed and where the card was issued
3. Device Fingerprinting
Collects detailed information that pinpoints the owner of the email address or cell phone. The information collected includes:
- Owner details (name, biometrics)
- The country where the cell phone or email was set up
- The current location
- The name of the service provider
- The type of cell phone
- The number of Internet service providers that are associated with the account
- The cell phone or email address language
4. User-Defined Details
Provides complete details about the cardholder’s buying habits and any disputes filed against them. The information collected includes transactions from all of the cards the customer has ever used:
- Dollar amounts
- The physical location of the transaction and shipping addresses
- The method by which the transaction was processed
- The type of business
- IP Addresses and the type of currency used
- Filed transaction disputes
The solution leverages a strategic partnership with one of the world’s top fraud prevention companies and state-of-the-art technology to offer:
- An ID scanner that takes a detailed forensic scan to ensure the validity of a government-issued ID.
- A safe that keeps cash secure and safe from the risks of retail shrinkage, including theft, counterfeit bills and human error
- An encrypting MICR Scanner that encrypts check data instantly and has the ability to read the underlying MagnePrint® in the MICR data to detect counterfeit checks
This approach creates the ultimate trifecta, safeguarding your dealership’s name, brand and revenue!
The cost of leaving your dealership vulnerable to auto dealership fraud and chargebacks is simply too steep to risk paying. With this advanced solution, you do not have to. Get a real fraud prevention solution that protects you every time, from all sides.